On February 21, 2018, the U.S. Supreme Court unanimously ruled that an individual is not covered by the anti-retaliation provision of the Dodd-Frank Act unless they have provided information regarding a violation of law to the U.S. Securities and Exchange Commission. Digital Realty Trust, Inc. v. Somers, No. 10-1276, 583 U.S. ___ (2018).

Somers was a Vice President of Digital Realty, a real estate investment trust, who filed suit alleging a claim of whistleblower retaliation under Dodd-Frank. Somers alleged that he was terminated for reporting suspected securities law violations to senior management.  Digital Realty moved to dismiss Somers’ claim on the basis that Somers did not qualify as a “whistleblower” because he never reported any alleged violations to the SEC.

The Dodd-Frank Act defines a “whistleblower” as a person who provides “information relating to a violation of the securities laws to the Commission.” The Dodd-Frank Act’s anti-retaliation provision protects a “whistleblower” in three situations, including when he or she makes disclosures that are required or protected under the Sarbanes-Oxley Act of 2002.  Sarbanes-Oxley includes several provisions regarding internal reporting of securities laws violations.  In interpreting this provision, the SEC issued Rule 21F-2, which expressly allows an individual to gain anti-retaliation protection as a whistleblower without providing information to the SEC.

The District Court denied Digital Realty’s motion to dismiss, and the Ninth Circuit affirmed. In particular, the Ninth Circuit found the statutory scheme ambiguous and held that the SEC’s Rule 21F-2 warranted deference under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984).

In reversing the Ninth Circuit’s decision, the Supreme Court unanimously held that the anti-retaliation provision must be interpreted in accordance with the statute’s definition of a “whistleblower.” Because this definition was “clear and conclusive” and “Congress [had] directly spoken to the precise question at issue,” Chevron deference to the SEC’s Rule was not appropriate.  The Court reasoned that this interpretation is in line with Dodd-Frank’s core objective of prompting reporting to the SEC.

Proskauer represented the U.S. Chamber of Commerce in its submission of an amicus brief in support of Digital Realty and a reversal of the Ninth Circuit’s decision.

The Court’s decision settles a circuit split between the Second and Fifth Circuits on the issue. The Ninth Circuit had followed the Second Circuit’s decision in Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015), holding that a whistleblower need not report a securities law violation to the SEC.  The Second Circuit concluded that the tension between the definition of “whistleblower” and the protection provided by Dodd-Frank’s anti-retaliation provision was sufficiently ambiguous to warrant Chevron deference to the reasonable interpretation of the SEC.  In contrast, the Fifth Circuit held in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013), that employees must provide information to the SEC to avail themselves of the anti-retaliation safeguard. The Fifth Circuit held that Congress defined a “whistleblower” unambiguously and rejected the SEC’s more expansive interpretation of that term.

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Photo of Lloyd B. Chinn Lloyd B. Chinn

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative…

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd’s practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

Due to Lloyd’s litigation experience, clients regularly turn to him for advice regarding the full range of employment matters, including terminations, whistleblower policy and procedure, reductions in force, employment agreements, and employment policies. For example, in the wake of the financial crisis, he has counseled a number of firms through reductions in force and related bonus and deferred compensation disputes. Lloyd has also been retained to conduct internal investigations of allegations of workplace misconduct, including claims leveled against senior executives.

Lloyd has represented global businesses in matters involving Sarbanes-Oxley and Dodd-Frank whistleblower claims. He has taken an active role in the American Bar Association on these issues, currently serving as Co-Chair of the Whistleblower subcommittee of the ABA Employee Rights and Responsibilities Committee. Lloyd has spoken on whistleblowing topics before a numerous organizations, including the American Bar Association, ALI-ABA, Association of the Bar of the City of New York, and New York University School of Law. He has testified twice before Congressional subcommittees regarding whistleblower legislation and has also published blog postings, articles and client alerts on a variety of topics in this area, including the Dodd-Frank Act’s whistleblower provisions. Lloyd is a co-editor of Proskauer’s Whistleblower Defense Blog, and he has been widely quoted by on whistleblower topics by a number of publications, including the New York Times, the Wall Street Journal, the National Law Journal and Law 360.

Lloyd has also become active in the International Bar Association, presenting on a variety of subjects, including: the #MeToo movement, the COVID-19 pandemic and employment law, and cross-border harmonization of employment provisions in transactions. Lloyd also hosts a quarterly roundtable discussion among financial services industry in-house employment lawyers. He has also published articles and given speeches on a variety of other employment-law topics, including non-solicitation provisions, FINRA arbitration rules, cross-border discovery, e-discovery, and the use of experts.